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Keep your cool when marketing

By Cathy Ekstrand, Senior Market Advisor, Guest Columnist

Welcome to the dog days of summer ... Seriously! I can
remember years ago before I became a market advisor that warm summer days
seemed so blissful. This year, as the temperature heats up and summer gets into
full swing, along come the stresses of a weather market.

Daily price moves of up limit one day, and then up the next,
and the next, bring along with them the fear that at any moment a change in the
weather could deflate the whole thing. Throw in USDA reports and European
economy concerns, and the volatility is enough to weigh on the nerves of even
the well-seasoned marketer.

Stay objective

This unfortunately has been a summer of the "haves and
have nots" when it comes to rainfall. An early planting season has put
some of the crops at greater risk than others as record high temperatures and
lack of rain have fallen during peak reproductive stages for corn. No one knows
for sure just how much the latest hybrids can tolerate when it comes to stress.
And we won't know the final bushel count until fall. It can be safe to say, however,
that the Midwest has suffered through recent drought conditions and yield loss has
occurred.

It's very challenging to remain objective when it's your
farm that hasn't seen a rain in a while. But that is what needs to be done, and
you can do it with a little bit of advanced planning. Almost every year there
is some type of weather rally in the summer. And more often than not, it's an
opportunity that needs to be seized in order to take advantage of a good
selling price or a place in which to hedge, even if we are afraid or uncertain.

It's the advanced planning and thinking about possible price
scenarios and your strategies that makes decision-making in the moment of
opportunity easier.

So what should you be thinking about? First, in the midst of
this chaos, one needs to step back and look at the big picture, and how your
farm fits into that picture.

  • Step back and look at where you are for sales this year. If
    you have received rain recently and have not made a sale since spring, this
    rally may give you an opportunity to price some more cash in order to raise
    your overall average.
  • If you are not comfortable making a cash sale based on your
    crop conditions, look to reward the rally with a fixed risk hedge such as
    buying a put option.
  • Think about what you will do as various price scenarios
    unfold. We all know that what goes up eventually will come back down. Maybe due
    to weather conditions we don't have to go as low as what was previously
    thought, but we know that at some point higher prices will offset demand, and
    prices could slide. Prepare for how you will act when that starts to happen.
  • Planning for price moves increases your confidence. If you
    go ahead and make a sale and still feel the desire to retain opportunity in
    case of an additional spike in prices, you could re-own that sale with a fixed
    risk purchase of a call option. Choose fixed-risk option strategies so you know
    what you are spending and where your risk lies.
  • Finally, the key to these volatile markets is to do things
    in increments. No one can predict where the top will be in a weather run
    market. So once you've made a sale, move forward and look ahead to the next
    opportunity.

 

Keep cool, and keep your cool when it comes to your
marketing, and before you know it harvest and a change in the weather will be
here.

If you have questions, you can reach Cathy at
cekstrand@s-pelmwood.com.



Market Scenario Planningsm is a service mark of
Stewart-Peterson Inc.

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